In February of this year, Kevin O'Leary finally got the watch he's been waiting for. The watch is the blue-faced Patek Philippe steel Nautilus Ref. 5711/1A. The wait was eight years.
Why so long? It's not as if O'Leary were putting loonies away (he's Canadian) for the day when he could afford the watch's $29,800 price tag. O'Leary is loaded. He's a highly successful entrepreneur, best known as a star of the ABC show Shark Tank. With a fortune estimated at $400 million, he can afford any watch that Patek Philippe, or any other watch company, makes.*
Kevin O'Leary (Photo: Courtesy CNBC)
But the Patek Philippe watch O'Leary wanted was the steel Nautilus. He explains why – and why it took so long to get one -- in a video on cnbc.com showing him picking up his steel treasure at London Jewelers in Manhasset, NY.*
O'Leary, a watch collector, wanted the watch for three reasons. One is that it's a design icon, created in the 1970s by the legendary watch designer Gerald Genta, who also designed the steel Royal Oak for Audemars Piguet. The Royal Oak debuted in 1972, the Nautilus in 1976.*
O'Leary genuinely loves the 5711's looks. In a post about watches on his YouTube TV channel, he rhapsodizes about the beauty and balance of Genta's design. **
Nothing brings a tear to my eye like making money. Technically, I just made 50,000 smackeroos!
Shark Tank's Kevin O'Leary
But an even bigger appeal than the Nautilus's beauty is its rarity. O'Leary, and thousands like him, want it because it's hard to get. In his excitement at finally owning the watch, O'Leary exclaims at London Jewelers, "Everybody wants this watch and no one can get their hands on it!"*

Steel watches, of course, are not Patek's thing. The 180-year-old company earned its reputation as the world's most prestigious watch brand on the strength of exquisite gold complications and dress watches. Of the 62,000 watches it says it makes annually, a mere fraction of its men's watches have steel cases.
Complicated watches and gold watches, like the new World Time Ref. 5231J, make up the majority of Patek Philippe's collection for men.
Which leads to the biggest reason the Shark Tank shark wanted the watch: he considers it a great investment.*
In the video, when he holds the watch in his hand, he tears up. Why the emotion? "Nothing brings a tear to my eye like making money," he says. "The 5711/1A blue face retails for $30,000, but it's so sought after that collectors are willing to pay up to $80,000 for it in the secondary market. So technically, I just made 50,000 smackeroos!"
Wait, Wait...

Patek Philippe isn't the only watchmaker experiencing increased demand for stainless steel watches.
Those smackeroos are a symptom of one of the most striking and strangest trends in the global watch market: the mania for steel sport watches from Patek Philippe, Rolex, and, to a lesser extent, Audemars Piguet.*
Over the past decade, market forces have conspired to create unprecedented interest in and demand for steel Nautiluses, Rolex watches (Daytonas, Submariners, and GMT-Masters) and Royal Oaks. (More on those market forces in a minute.)
The result, as the HODINKEE community knows well (painfully in some cases), is record shortages and wait times for those models, and record premiums for them on the secondary market. *
The Audemars Piguet Royal Oak was one of the earlier steel watches to experience a surge in popularity.
Inevitably this has led some new owners to flip those pieces. True, a watery-eyed, horological softie like O'Leary wouldn't dream of parting with his long-sought Nautilus right after he finally got it. In fact, he says he wants to be buried with it, puncturing Patek's solemn slogan that "You never actually own a Patek Philippe, you merely look after it for the next generation."
Not everyone is as sentimental as O'Leary. Flippers have helped make new Nautiluses available at pre-owned watch dealers and grey market outlets online and offline. One story making the rounds in watch circles tells of Patek clients in London, who pay the list price of £23,440 for their 5711 at Patek's authorized dealer, Mappin & Webb on Old Bond Street, then walk one block down Piccadilly to the certified pre-owned watch dealer Watchfinder & Co. in the Burlington Arcade. There they sell the watch at a 50% premium, earning the pound equivalent of 15,000 smackeroos in a matter of minutes. Watchfinder marks the watch up another 50% or more and sells it to a buyer who doesn't want to wait an eternity for it, or who has no hope of ever getting on a waiting list. *
100%-Plus Premiums

Patek Philippe President Thierry Stern.
For Patek Philippe president Thierry Stern, the steel Nautilus mania is a conundrum. Every watch company chief, of course, wants to have the hottest watch in the world. The Nautilus boom has brought the firm big buzz and big sales. Switzerland's Ventobel Equity Research estimates that Patek sales in 2018 rose 7% to CHF 1.45 billion. (The company, privately owned by the Stern family, does not disclose sales figures.)
But there's a downside to the Nautilus's popularity for Patek. Authorized dealers complain about the long waiting lists and wait times, empty Patek Philippe vitrines in their stores, and strained relations with customers. Customers complain about the same things. Those who cannot get on a waiting list accuse Patek and its ADs of playing favorites, restricting steel Nautilus watches to big customers or big shots.
I have to be very tough on the quantity [of steel watches]. I don't want steel taking over the lead in the whole collection.
Patek Philippe President Thierry Stern
Some watch observers claim that the 100%-plus premiums over the retail price paid for new stell Nautilus watches on the secondary market amounts to a bubble. It's a safe bet that Patek's product development strategy does not call for the company's signature product – gold Calatravas – to be eclipsed by its less expensive steel sports watch. The fact that the Nautilus does, critics argue, is a warning sign of something amiss in the Patek Philippe market.
'A Dangerous Matter'

This year's big Patek Philippe sport watch release was an Aquanaut in white gold instead of stainless steel.
Recently, I had a chance to discuss the steel Nautilus shortage with Stern briefly in Switzerland. He is, of course, acutely aware of the consequences of it. When I mention the Mappin & Webb story, he says, "You are right. Today, you can walk out of the store and sell it [at a high premium] just like this," snapping his fingers.
He could solve that problem and the others pretty much overnight, he says. But, in his view, the cure would create worse problems.*
"Tomorrow, if I decide suddenly to produce 40,000 watches in steel, it's over. You can go out of the store, and you will not be able to sell it for this price anymore."
The Steel Ref. 1518

While Patek Philippe makes most of its watches in precious metals, the company does have a long history of producing pieces in stainless steel, going back more than 100 years. One of the most famous of these is the elusive Ref. 1518 perpetual calendar chronograph –*in 2016, one of the four known examples fetched over $11 million at auction.
Check out our full in-depth report on the steel 1518 here.

But, he says, "It is a dangerous matter. This is something we need to be very careful about. Many years ago, IWC was producing gold watches. Then they had problems, and they fabricated everything in steel. They tried to come back to gold, and they could never do it. Once you lower the price with steel, it is very hard to come back."*
"So, I don't want this with Patek. That's why I took the decision many years ago to say 'Let's limit it.' I am limiting the steel versions, mostly the Nautilus. That's really the one that everybody is looking for. Why is it so expensive? It's simply because there are just a few of them."*
"At our level, steel has always been very rare. Today, I have to be very tough on the quantity. Because I don't want to see steel taking over the lead in the whole collection in terms of material. So we have to be vigilant."*
Stern doesn't mention it, but that's what happened at Audemars Piguet with the Royal Oak. That steel sensation became the face of the brand. Sources say that, privately, Stern cites the lesson of the Royal Oak. For reasons of brand equity and brand identity, he is determined not to let the Nautilus become the emblem of Patek Philippe.*
Strict Limits

A steel Patek Philippe Twenty-4 watch.
Patek Philippe does not say how many Nautiluses it makes. However, its policy is to limit its entire steel-watch production to 25% to 30% of its total production. "We say this is the maximum number of steel watches that Patek Philippe should produce every year, and we are going to stick to that," Stern says.
The majority of the steel-watch output consists of its ladies' Twenty-4 collection. For that, quantities can vary slightly. "With the Twenty-4, the quartz and now the automatic, I say, okay, we can open [the tap] a little bit more."*
But for men's watches, especially the Nautilus, the limits are strict. Stern and his brain trust made that decision some years ago when demand for the Nautilus started to surge, Stern says. "We said, 'Uh-oh, we have to watch out.' That's when we said, 'This is the max.'" Patek Philippe dealers say they are lucky to get two a year. Some get none.
Tomorrow, if I decide suddenly to produce 40,000 watches in steel, it's over.
PATEK PHILIPPE PRESIDENT THIERRY STERN
Historically, Patek Philippe has never made many steel watches. Steel was never in the company's DNA, Patek executives say. True, some steel pieces rank among the firm's most famous watches. But that's because they are so rare. A perfect example is Ref. 1518, the world's first perpetual calendar chronograph produced in series. The firm produced a total of 281; four of them were in steel.
Philippe Stern introduced the Nautilus in 1976 to appeal to younger customers.
In recent decades, Patek's strategy has been to use steel judiciously, when it felt it needed to refresh its image and/or widen its appeal. Philippe Stern, Thierry's father, introduced the Nautilus because he was concerned about Patek's image as an older man's watch, Patek sources say. He wanted a collection that younger people could afford. "We had to twist arms to get jewelers to take it," remembers Hank Edelman, chairman of Henri Stern Watch Agency, the company's U.S. subsidiary. "Jewelers said, 'What are you doing? This isn't a Patek Philippe!'"*
Similarly, in 1999, the company introduced the steel Twenty-4 collection to cultivate women, a clientele it felt merited more of its attention. But at precious-metal-producer Patek, steel is always the exception that proves the rule. Hence, Stern's vigilance.*
Fewer Authorized Dealers

The current frenzy isn't only for the Nautilus: many Aquanaut models have multi-year waiting lists as well.
He acknowledges that by maintaining the shortage of steel watches, he is fueling the higher demand and premiums. "I am maintaining it, yeah," he says. "It is not easy. Because the retailers and even our own staff are pushing us to have more. Because the demand is there."
But he is not decreasing it. Contrary to speculation that Patek has cut its steel-watch output, he notes that production is rising, albeit slowly, even of men's pieces. "I am going up with the production, but drop-by-drop. As it is a percentage [of total production], it's a slightly higher number."*
Of the 10 new men's models for 2019 on the Patek Philippe website, only two are in steel. One is the Nautilus Ref. 5726/1A-014 annual calendar with moon-phase display and blue-back dial. The other is the Calatrava Ref. 5212A Weekly Calendar. "It's a steel version. But it's only one piece, and I am not willing to do more," Stern says.*
In recent years, Patek Philippe has released more versions of the Nautilus in precious metals, including this white gold Ref. 5740 perpetual calendar.
On other models, despite enormous pressure, he's not willing to do any. "For example, the Pilot, with the alarm [the new Travel Time 5220P]. This is platinum. It's not steel. I had a lot of requests, of course, for a steel version, but I said, 'No, there is no way we'll do it. Let's keep it on the Weekly Calendar and let's see.'"
Asked about the jarring sight of empty Patek Philippe cases in dealers' stores (because every steel watch is pre-sold, deliveries don't make it to the showcases), Stern says he is troubled by it. "That's not good, that's for sure."
It's one of the reasons he recently trimmed Patek Philippe's dealer network by about a third. "I could not supply enough, and I had no choice. I didn't want to increase the production. The only thing I could do was to decrease the number of retailers, so that the others could have enough stock." In the U.S., the dealer network shrank from 160 ADs to around 100.*
Hot Steel

The new steel-cased Calatrava Ref. 5212A Weekly Calendar.
Stern, born in 1970, is the fourth generation to head the family firm. He joined it in 1994, became vice-president in 2006, and succeeded his father as president in August 2009. (Philippe Stern is now honorary president.)*
I ask if he has ever seen such strong demand for steel Patek Philippes. "Not for steel, no," he says. "But we have seen it for different colors. Remember when we used to talk about the seven-year cycle for design colors? Yellow gold, and white gold, and pink gold. Steel is part of the cycle today."*
By all accounts, men's steel watches are having a moment. One reason, Stern and others say, is price. As the China boom and strong Swiss franc drove Swiss watch prices through the roof over the past decade, consumers shifted to steel.*So did Swiss producers during the Swiss-watch downturn of 2015-16. "They had to sell watches at a lower price," Stern says, "because people were not ready to buy a very expensive watch anymore." *
Fashion shifts also made steel watches trendy. The rise of casual wear in the workplace made steel sports watches suitable for weekday work as well as weekend fun.*As a result, steel appealed to the much sought-after millennial buyer. "The younger generation likes steel in terms of fashion and price," Stern says.
The Frenzy

The platinum Nautilus Ref. 5711/1P introduced for the collection's 40th anniversary in 2016.
That's part of it. Other factors, observers say, are the 40th anniversary of the Nautilus in 2016, and the digital revolution.
For the Nautilus's 40th anniversary, Patek introduced two limited-edition, precious-metal models with diamond hour markers: Ref. 5976/1G flyback chronograph in white gold (1,300 pieces priced at $96,390) and Ref. 5711/1P in platinum (700 pieces priced at $113,400).
That Patek dolled up the Nautilus for a milestone birthday with gold, platinum and diamonds at eye-popping prices infuriated some purists. But the fuss about the anniversary triggered new interest in the more affordable steel Nautiluses and sparked a spike in prices for vintage pieces at auction.*
The internet helped in two ways. With in-depth information about watches available worldwide on watch websites, word that steel Pateks (and Rolexes) were red hot spread like wildfire around, and beyond, the watch-collector community.*
The 40th-anniversary white-gold Nautilus Ref. 5976/1G.
And e-commerce created a vibrant secondary market for Nautiluses, both new and used. The burgeoning certified pre-owned watch marketplace on the web, as well as perennial grey market dealers, made the watches available outside the authorized distribution channel at premium prices. Those prices reinforced the watches' image as great investments.*
It was a formula for a frenzy that now feeds on itself. One U.S. Patek dealer tells the story of a good watch customer who surprised him by showing up in the store wanting a steel Nautilus. The customer is a dyed-in-the-wool classic-gold-watch guy. *
"Tell me the truth," the jeweler said to the customer. "Do you really like this watch? If I took the logo off this watch, would you buy it?"*
The customer thought for a second, then said no. *
"Then why do you want it?" *
"Because I hear so much about it and people say you have to have it."*
A Permanent Premium

Vintage Nautiluses in steel, like this original reference 3700, have increased in value as a result of the scarcity of the modern ref. 5711/1A.
So it goes. And will continue to go. Credit Suisse, in a May 2 research note, cites what it calls the growing "brand polarization" between Rolex and Patek Philippe and the rest of the Swiss watch industry.*
Credit Suisse's quarterly Watch Research Survey of retailers around the world for the first quarter of 2019 " ... shows that retailers predominantly selling Rolex and Patek Philippe report stronger sales than their peers," wrote Credit Suisse's Guillaume Gauvillé.*"Conversely, those that do not sell these two brands saw declining sales in 1Q."*
Credit Suisse polls its panel about sales expectations by brand in the near future. "Looking at sales prospects by brands, the gap between these two leaders and the rest of the industry is the highest we have seen in the last five surveys…. The expected outperformance of both Rolex and Patek Philippe clearly stands out."
The premium [on the steel Nautilus] will always stay, that's for sure.
Patek Philippe President Thierry Stern
Looking ahead, I ask Stern what he foresees for the steel-watch cycle. "I think it's a trend that's going to stay for quite a while," he says.
What about the premium on steel Pateks?*
"The premium will always stay, that's for sure," he says. "Because you have more and more people who are able to buy the product." Given his restrictions on supply, demand is virtually certain to exceed it. *
Also sure to stay, then, is the status associated with landing a steel Nautilus. "That's human nature," Stern says. "There will always be people who wear the watch just to tease you and say, 'You see, I have it already.' This will never change."
Just ask O'Leary. "Open that box!" he urges London Jeweler's watch salon manager Michael Edelman in the CNBC video. "I'm freaking out right now," he says, "because the moment this box opens and I put this watch on my wrist, I become the envy of just about every billionaire, CEO, and celebrity on the planet!"*


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